Here is an easy economic forecast with a high probability of realisation; Venezuela is heading for a calamatious fiscal crisis. It is going to happen the moment that oil prices start to decline. Last year, el jefe and dictator for life – Hugo Chavez – increased public sector expenditure by a staggering 48 percent. Despite the fact that oil prices are at an all time time, oil-producing Venezuela is running fiscal deficit.
The country's stretched finances should come as no surprise. Chavez spared no effort to win another six-year term in office. His generous social programs helped grease the political machine that handed him the presidentcy chair once more. However, the guy is addicted to public expenditure. His spending continues to rise this year even in the absence of elections. Buying elections can be expensive, and it has become a habit. He carries on with it, even after he has effectively abolished parliament and now rules by decree.
The quasi-communist leader who often rails against the "evils of capitalism" spent a record amount and left a 2.28 trillion bolivar ($1.06 billion) gap in the country's finances even in the face of record oil gains. Soon, he will find out that there is an even greater evil that capitalism; it is called fiscal reality.
The arithmetic of the Venezuelan budget is simple enough. Over 53 percent of revenues come from oil. The price of oil is currently around $55 a barrel. So long as it stays there, he will be OK. If it drops off, he starts to slip into trouble. Nevertheless, the economy is starting to show the strains arising from his extravangence. He has also propelled inflation to 17 percent, making it the highest in Latin America. At the current pace, many expect rising prices to top 20 percent this year.
As we know, inflation always hurts the poor. So what he gives in entitlement programs, he takes back with inflation. Viva la revolution!
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1 comments:
Economic Despair said...
A fair question; I would argue that a dictator is someone who has a monopoly of power, without any checks and balances. The fact that he was democratically elected, simply makes him a democratically elected dictator.
As for his popularity, I believe that there is nothing so treacherous as the support of the people. Once the oil price comes down, his popularity will follow.
Thanks for the comment....